A Texas-Sized Hole in the Betting Landscape
Anyone who's driven through Texas knows it's a huge state – roughly 800 miles from east to west and the same distance from north to south. Any horseplayer in Texas who wants to make a legal wager also knows the pari-mutuel windows are few and far between: four horseracing tracks (plus another on the way in Amarillo in 2014) and a couple of dog tracks. There are no off-track betting sites and, as of last week, no advance-deposit wagering.
I remember the excitement and enthusiasm Texans demonstrated in the late 1980s and early 1990s when pari-mutuel racing was legalized and made its return to the Lone Star State. The grand openings of the state's three Class 1 tracks – Sam Houston Race Park in Houston, Retama Park in San Antonio, and Lone Star Park in Dallas/Fort Worth – were met with tremendous optimism. Houston, San Antonio and Dallas are in the top 10 U.S. cities by population and three others (Austin, Fort Worth and El Paso) are in the top 20, so the state has the critical mass to succeed at just about anything.
Texans love horses, and many of them love to gamble.
But the Texas legislature has made it very difficult to bet – at least legally. It has not supported efforts to allow off-track betting and, while many other states have authorized advance-deposit wagering or allowed it to be conducted under the guidelines of the federal Interstate Horseracing Act, the Texas Racing Act enacted in 1986 states that “wagering may be conducted only by an association within its enclosures.”
During its 82nd session in 2012, the Texas legislature clarified the Texas Racing Act to include the following language: “A person may not accept, in-person, by telephone, or over the Internet, a wager for a horse race or greyhound race conducted inside or outside this state from a person in this state unless the wager is authorized under this act.” And: “Except as provided by this section, a person may not place, in-person, by telephone, or over the Internet, a wager for a horse race or greyhound race conducted inside or outside this state.” And: “A person who is not an association under this Act may not accept from a Texas resident while the resident is in this state a wager on the result of a greyhound race or horse race conducted inside or outside this state.”
Before that law was passed, several ADW companies were taking bets from Texas residents on out-of-state races. All the ADW companies except one gradually pulled out of Texas, however, after receiving a cease and desist letter from the Texas Racing Commission, with TwinSpires.com being the lone exception. Last week, when a federal judge ruled against TwinSpires and its parent Churchill Downs Inc. in a lawsuit against the Texas Racing Commission, TwinSpires told its Texas customers it could no longer take their bets.
Attorneys for TwinSpires said they would appeal the ruling, insisting the Texas law violates the Commerce Clause of the U.S. Constitution.
Horseplayers in Texas, understandably, were unhappy to be cut out by the 2012 law and recent court ruling. But Texas racetracks and horsemen were unhappy that they were receiving zero revenue from wagers made by Texas residents with ADW companies. They felt their customers were being poached.
There are three kinds of U.S. states when it comes to advance-deposit wagering: 1) those states which have specifically authorized ADW and may have guidelines for revenue sharing among the ADWs and in-state horsemen and racetracks; 2) states that have not specifically authorized ADW but that do not prohibit the practice (these are “gray” states because the law is neither black nor white when it comes to ADW); 3) states like Texas and Arizona where it is specifically against the law.
ADW companies are more profitable in “gray” states because there is no revenue-sharing model. As horseplayers in a “gray” horseracing state gravitate from racetracks and off-track betting sites to ADWs, tracks and purses suffer.
Let's use Texas as an example.
Over the course of one year, let's say a group of Texas residents bets $100 million at Texas tracks on simulcast races from out of state. If the track pays 3 percent for the signal and the takeout is 20 percent, that's $17 million going to racetrack operations and purses in Texas.
If those same Texas bettors had bet $100 million through an ADW company, none of the revenue would stay in Texas. It would go to the ADW company. Let's say it's the same 20 percent takeout minus the signal fee, which we'll estimate at 7 percent for an ADW, since they pay more than a brick-and-mortar facility. That's 13 percent or $13 million to the ADW for facilitating a bet.
There are many states like this, where local tracks and horsemen get nothing from ADW wagering. So, while it was not fair to Texas horseplayers to pull the rug out from under them, it's been equally unfair to Texas horsemen and racetracks to have the flow of dollars leave the state.
Texas racing is at the proverbial crossroads. It is surrounded by casino states – New Mexico, Oklahoma, Louisiana and Arkansas – where racing and breeding benefit from other forms of gambling. The legislature has steadfastly refused to expand distribution of legal pari-mutuel wagering while permitting a state-run lottery to sell tickets at countless locations throughout Texas.
The horse is a big part of Texas. Horseracing and horseplayers, on the other hand, are being treated like second-class citizens.